Cyprus - Kazakhstan Double Tax Treaty

From 1^st January 2021, the Cyprus-Kazakhstan Double Tax Treaty agreement will enter into full force with all the provisions on income tax.

Cyprus for the first time signed the agreement on May 15^th 2019 with Kazakhstan. The treaty further strengthened Cyprus position as an investment hub for the Eurasian region.
The Treaty covers the main provisions like the definition of the permanent establishment, taxation on capital gains, dividends, interests and royalties, and other aspects, which will create unique opportunities for both countries’ business and entrepreneurs.
 
Key provisions of the Treaty – a brief reading through

1. “Permanent Establishment”

The Treaty specifically defined “Permanent Establishment (PE)”, which is slightly different from the wording of the 2017 Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income.
It concerns that a building site, construction, assembly or installation project in connection therewith will constitute a PE if such arrangement lasts for a period of more than 6 months within any 12-month period.

2. Withholding Tax

The Treaty provides the possibility of lowering the withholding tax on the following incomes:

Dividends:

• 5% withholding tax if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends.

• The withholding tax is 15% in all other cases.

Interests:

• 10% withholding tax on interests payments, provided that the recipient is the beneficial owner of such interest

• No withholding tax should apply on interest payment to the government authorities.

Royalties:

• 10% withholding tax on royalty payments, provided that the recipient is the beneficial owner of the royalties.

 
Irrespective of the above, Cyprus does not impose withholding tax applied on dividend / interest / royalties payments to non-Cyprus tax resident (except the royalty payments earned on the rights used within Cyprus).

3. Tax on Capital gains

Under the Treaty, gains derived by a resident one state from the alienation of shares or comparable interests in the capital of a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other state may be taxed in that other state.
 
How would this affect the business
The Treaty’s main scope is to enhance the economic and trade ties between the two countries, as well as to provide better protection for the residents in both countries.
Kazakhstan levies withholding taxes at the rate of 15% on dividends, interest and royalties. This rate would be reduced by the provisions of DTT between the countries.
 
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